The Czech Republic: Self-inflicted pain

Should the euro area continue to ‘muddle through’ and thus avoid deep recession in 2012, the Czech economy would escape recession as well. But its growth in 2012 will be depressed by the stubborn attempts to meet the fiscal targets, no matter what. A euro area recovery in 2013 and beyond would naturally (by way of stronger demand for imports) help speed up growth in the Czech Republic. In addition, the fiscal consolidation measures will by then become less intense (also because of the next regular parliamentary elections to be held in 2014). Good financial standing of the banking and corporate sectors, relatively low level of household debt, combined with competent policy of the Czech National Bank (determined to keep a very relaxed policy even in face of temporary hikes in inflation) should, by then, help accelerate growth – first of investments and then of private consumption and overall GDP.